The Hyperbolic Forest Owner
AbstractThis paper examines the implications of quasi-hyperbolic inter-temporal preferences to the Faustman model. The use of decreasing discount rates leads to dynamically inconsistent behavior. To solve this problem a two-stages optimization decision model is developed. The resulting actual cutting time will be anticipated compared to the Faustman optimal cutting time. If, alternatively, the equivalent constant rate of discount is the empirically observed discount rate, then the optimal cutting time is the same, but the present value of profits for the hyperbolic forest owner is always higher than the one resulting from the equivalent constant discount rate. All these results apply to both the single and the multiple rotation problems.
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Bibliographic InfoPaper provided by Universidade Nova de Lisboa, Faculdade de Economia in its series FEUNL Working Paper Series with number wp405.
Length: 25 pages
Date of creation: 2001
Date of revision:
Hyperbolic discounting; time preference; dynamic inconsistency; Faustman model; optimal rotation;
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